Tuesday, September 02, 2014

Replacing APER: the new Senior Management Regime and Certification Regime
for banks

Executive Summary

a new Senior Managers’ Regime (SMR) to replace the old Approved
Persons Regime (APER), but covering a narrower range of individuals than
APER;

a new Certification Regime (CR), whereby firms would have to
self-certify certain employees as ‘fit and proper’, and would apply to a wider
range of individuals than APER; and

new banking conduct rules for individuals, based on the rules in APER, but
applying to almost all a firm’s employees;

all of which
will apply only to banks, building societies and PRA-authorised investment
firms. (See below for limits on geographical scope.) APER will be abolished in
this sector, but will continue to be in place elsewhere (for the time being, at
least: see also below).

The proposed
regime change is extremely complicated: the result, perhaps, of combining two
different systems (for PRA and FCA) into a scheme of late Byzantine intricacy.
We have summarised each aspect of the consultation paper below –a high-level
overview rather than an exhaustive analyis – but the highlights of the proposals
are:

the new, statutory 'Presumption of Responsibility' – or reversed burden of
proof – where, if a firm has breached a regulatory requirement, the Senior
Manager responsible for the area of the breach will have to satisfy the
regulators that he took "reasonable steps" to prevent, stop, or remedy that
breach – with the possibility of facing individual sanctions if he cannot do so;
(this does not entail strict liability: what constitutes "reasonable steps" will
be determined on a case-by-case basis;)

as noted above, a greatly increased scope for the new conduct rules, which
are based on (and replace) the APER rules; unlike APER, however, the new rules
will apply to almost all employees of a bank, building society or PRA investment
firm;

Senior Managers will now be liable to enforcement action from three separate
directions:

for individual breach of the conduct rules (FSMA ‘Condition A’);

by being “knowingly concerned” in a breach of rules by the firm (FSMA
‘Condition B’); or

through breaches occuring in the areas for which they are responsible (FSMA
‘Condition C’)